An effective rebuttal to warnings about Peak Oil?

Summary: A common rebuttal to “peak oil” is to show that we are not running out of oil. While true and comforting, this is irrelevant and can blind us to the serious danger of declining oil production. Things will certainly work out in the long run, but that will not offset pain during our lives — and our children’s.

Have you seen these stories, these scaremongering, fear-oriented stories? Some people predicting $200 a barrel per oil. Somebody out there saying $10 a gallon gasoline. Now, let’s not get carried away here and pile on the panic, but for heaven’s sake, can we look at the real world? Not at the windmill wackos and how they would like us to see the real world.

Let me give you some reality, and this is from Bloomberg: “Brazil may be pumping ‘several million’ barrels of crude daily by 2020, vaulting the nation into the ranks of the world’s seven biggest producers.” Several million barrels of crude daily by 2020. They’re talking about pumping oil 12 years from now, folks. How can that be if we’re running out?

That stupid question that Bush got about we’re reaching our peak, asinine. Absolute BS, undiluted, pure stinky BS! They’re pumping billions of dollars into developing the Caspian Sea for oil 20 years from now. We are not running out.

Limbaugh is the mass-market voice of the “we are not running out” rebuttal to Peak Oil. He finds support from many sources. Their optimism comes in several forms.

The theory that oil has abiogenic origins, and reservoirs are replenished from below. Thomas Gold is the best known advocate of this in the west.

“The bottomless beer mug“, The Economist (28 April 2005) — “Why the world is not running out of oil.” (Non-subscribers can see it here) Excerpt:

And yet, despite this history of innovation and abundance, concerns about depletion are once again clouding the industry’s future. This time round, argue the doomsayers, depletion really is looming, and technology will not come to the rescue, as it has done in the past. If they are right, today’s oil prices are but a harbinger of much, much worse to come.

Another myth: we are running out of oil. According to WorldPublic Opinion.org, “majorities in 15 of the 16 nations surveyed around the world think that oil is running out … Those majorities who think we are running out of oil include 85% of the British and 76% of the American citizens polled. Luckily, they are wrong.

Production of oil is being constrained by several forces, none of them due to God’s failure to put enough of the black gold under our feet. … There is a lot of oil out there to be found and produced, not even including the vast reserves in Canada’s tar sands. We might have reached the age of peak panic about oil supplies, but not of peak oil.

Quite right, of course. The world has immense petroleum reserves, enough to meet our needs for generations. Let’s assume all three of the optimist’s beliefs are correct.

#1, Abiogenic oil — Oil fields are exhausted (massive production declines) in years or decades. Abiogenic sources might recharge them, but probably over millennia (at the least). Oil does not move quickly through rock. If correct, the Texas oil fields will be gushing again in 50,000 AD. I doubt our descendants will care.

#2 and #3 are almost certainly true. The significance of this lies in the details. How quickly can production ramp up at these new sources? At what price can companies tap these sources? And to what extent do these offset declining production of the world’s super-giant fields — Ghawar, Burgan, Cantarell, etc?

These things are comforting, but irrelevant — like most “Straw man” arguments. “Peak Oil production” does not mean “no oil production.” Peak production occurs when declining output from conventional sources (cheap and easy to produce) outpaces the growth in output from unconventional sources. Given the complexity of unconventional sources, it is an unequal race. All forecasts from mainstream experts forecast peaking in the by the middle of this century, with most forecasts in the next decade or so — and those assume increased production from Saudi Arabia, which their King says will not happen.

From an economic perspective, the solution to peak oil lies the realtionships between supply, demand, and price. In simple terms, insufficient supply of a good increases its price — which brings forth new supplies. Although denied by many in the peak oil community, this is certainly true of energy (or more narrowly, liquid fuels). Over time some combination of increased efficiency and new sources will keep our economic engines running. Over time.

But this *long run* is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
“A Tract on Monetary Reform” John Maynard Keynes (1923)

We must think of long-term factors, but we live in the short-term. As the Hirsch report (“Mitigations”) showed, the adaptation to peak oil will take at least two decades. We might not have two decades, in which case our complacency might result in years of economic pain and turmoil. Knowing that things will work by 2200 will be cold comfort during a long, deep recession.

Update

For an excellent analysis of the relationship between global growth patterns, currencies, and oil prices, see “The Economist and Goldman on oil and the dollar“, Brad Setser, RGE Monitor (4 May 2008) — Excerpt: “high real oil prices contribute to a weak dollar more than a weak dollar contributes to a high dollar price of oil.”

Please share your comments by posting below, relevant and brief please (max 250 words). Too long comments will be edited down (very long ones might be deleted). Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

8 thoughts on “An effective rebuttal to warnings about Peak Oil?”

I suggest looking into getting access to Resource and Energy Economics, ISSN: 0928-7655. Maybe you can get it without paying. Maybe a local library or university already has a subscription you can borrow.

Description

Resource and Energy Economics provides a forum for high level economic analysis of utilization and development of the earth’s natural resources. The subject matter encompasses questions of optimal production and consumption affecting energy, minerals, land, air and water, and includes analysis of firm and industry behavior, environmental issues and public policies. Implications for both developed and developing countries are of concern.

The journal publishes high quality papers for an international audience. Innovative energy, resource and environmental analyses, including theoretical models and empirical studies are appropriate for publication in Resource and Energy Economics.
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Fabius Maximus replies: Energy Policy is another journal with good articles about this important subject.

1) So far as the relationship between “supply and demand” and oil production is concerned, let us consider the analogous situation of the relationship between “supply and demand” and perpetual motion machines. There is, I think we all would agree, tremendous demand for such machines; and the profit making potential of such contraptions would be enormous. Nevertheless, for some reason, they persist in very short supply.

2) One of the chief Peak Oil gurus is Kenneth Deffeyes. Back in the ’70’s, I sat in his geology class where he then held forth that oil production would then decline. Sooner or later, he will be right.

3) Peak Oil advocates do not assert that there is no more oil. Rather they assert that, while there is still plenty of oil, it will grow increasingly more difficult to discover and extract. This is what they call Energy Return on Investment. There are going to be fewer and fewer Jed Clampetts.

4) It would require a geology degree to critique Peak Oil. Still, the Oil Drum contains much information of current geopolitical interest and -as such – is a valuable resource.
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.Fabius Maximus replies: I do not see the relevance of points #1 and #2 to this post, although I agree with what you say. I do not see the relevance of #1 to peak oil.
.The Oil Drum has some good information, mixed in with large doses of nonsense. Sorting out which is which takes more time than perhaps the result is worth. The ASPO-US and ODAC newsletters are imo better sources.

Peak Oil can actually be explained using one chart. Interested readers can go to http://tonto.eia.doe.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_m.htm and then either save or open the “Download Series History” link next to the MS Excel Tab. When the data comes up, choose the tab marked “Data 1”. Then, just highlight the columns A and B dating from 1920 to the most recent month of 2008 (February as of today).

Then, just plot the data in a scatter point or line chart and you will see how one of the largest oil producing regions ever exploited on earth and managed with better technology and more transparency than any other region in the world has played out over the decades. That is peak oil. Oil is still being pumped in vast quantities in the U.S., but the Peak could never be regained, even with Prudhoe Bay coming online (that countertrend hump in the late 1970’s you see).

Amazing how a basic fact of geology can be ignored by supposedly very intelligent people.

1) Point No. 1 is relevant to the following: “From an economic perspective, the solution to peak oil lies the realtionships between supply, demand, and price. In simple terms, insufficient supply of a good increases its price — which brings forth new supplies.” Stated otherwise, you can demand the physically impossible until you are blue in the face, but there will be no forthcoming supply no matter what the price. Peak Oil advocates are asserting -correctly or incorrectly – that physical reality itself impedes further oil development, supply and demand curves to the contrary notwithstanding.

2) Perhaps I got carried away with my post about Deffeyes, who I nevertheless remember quite fondly; but my anecdote about his foibles does buttress Limbaugh’s quote, even though my general opinion of Limbaugh is unprintable.
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.Fabius Maximus replies: I belive you are overstating the economic significance of Peak Oil. New supplies will almost certainly appear, as “predicted” by the standard supply/demand price curves — just not supplies of petroleum. After all, we need energy, not petroleum. It will take time however. Innovations do not come along like buses, on a convenient schedule.
.I agree with your comment about Deffeyes. The history of incorrect forecasts about peak oil is a black mark against its advocates, indicating profound and consistent methodological weaknesses. I have written about this several times.

The last comment (by “DC”)on the RGE article linked above questions the failure of the Economist/Goldman article to point out the obvious connection between America’s weakening position in the global economy and its attempt to control oil militarily in the Middle East. The relationship between oil prices and dollar strength or weakness is not an isolated dynamic but part of a larger strategic picture involving many factors. A weakening dollar and rising oil prices are typically mentioned as two of the “follies” or unanticipated consequences of the US adventure in Iraq, but it’s possible that both were intended as chess moves in the complex game of global economic competition.
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.Fabius Maximus replies: That asks to much of this little report. That was a reductionist analysis, investigating the relationship between two key factors in the global economy. Which one drives the other (net, as they are interdependent)? What are the specific dynamics? Such specific work are the building blocks of larger models.
.They are to be commended for doing real research, unlike the inspired guessing that is SOP for such things.

I think so, but only if we get some strong leaders at the top that will tell us the truth and start the transition now. I think our nation, the new President, since the old one is in the hip pocket of big oil and automobile, has to lead us through a “Manhatten like project” but focused on alternative energy. This also calls for curbing our demand for it. Do we have a leader with the moral strength to ask us to sacrifice? I don’t know.

Otherwise, I think his predictions will come true. Don
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.Fabius Maximus replies: Does this person subscribe to the Psychic Hotline? Energy forecasts — esp. by Peak Oil folks — have been notoriously wrong for many decades. I find it amazing and bizarre that some people believe the future has suddenly become clear as glass. Let us parse the third paragraph on their home page.

“In practical and considerably oversimplified terms, this means that if 2005 was the year of global Peak Oil, worldwide oil production in the year 2030 will be the same as it was in 1980.”

It was an evil day for humanity when Johann Carl Friedrich Gauss “invented” the bell curve. It applies to many phenomena, but not to ALL phenomena. There is a strong basis to believe the global production curve will be asymmetric. Just to mention two factors… First, the graph should be of “liquid fuels” not oil. Substitutes for petroleum (e.g., biofuels, coal to liquids) were insignificant on the way up – but might be significant on the way down. Second, 2005 may have been but probably was not the peak year (they confuse political peaking with geological peaking).

“However, the world’s population in 2030 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin.”

How wonderful that the authors understand so much about the technology and economy of 2030. No doubt they are billionaires, have made prescient investments in 1986 – their technology and biotech bets must have paid off well.

“As a result, the price will skyrocket, oil dependant economies will crumble, and resource wars will explode.”

Sounds ominous. Before moving to New Zealand or Tasmania, can we first see their forecasts for 2008 written in 1986? Predictions of the USSR’s collapse, the two Gulf Wars, the Rise of China, and the economic growth of the past five years (perhaps the fastest global growth since the invention of agriculture).

The actual experts I know tend to be more modest in their predictions. In fact, I suspect an inverse correlation between expertise and bombastic rhetoric. For example, Robert Hirsch’s writings sound nothing like this stuff.

I just wanted to alert you to this weekend’s lead editorial in Canada’s Financial Post. “Abundant energy will power future growth” by Lawrence Solomon, dated 12 July 2008 should be posted and critiqued in depth. I will let you look at it yourselves. I also sent it along to the Oil Drum editors for “peer” review.

If you have any doubts about the significance of this sort of cornucopian piffle, Mr. Solomon is also the author of “Deniers” a book that systematially recast ordinary scientific skeptics into supporters of the GHG policy monkey-wrenching that has finally succeeded at the G8 and within North America.

The FP editorial also represents what passes as Canadian government energy policy. Obviously this has been as warmly welcomed in “undisclosed locations” south of the border as our minority right-wing government’s support for Bush/Cheney GHG policies. This, in fact, is the next step. Jet cars, anyone?

Fred Strong, Montreal
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.Fabius Maximus replies: Lawrence Solomon is executive director of the Urban Renaissance Institute. Here is an archive of his articles. Here are links to his ten-part series of National Post articles showing some weaknesses in the case for anthroplogic global warming.

I have not read any of these articles. But one of his articles I have read, and believe it is both correct and important (esp to folks like myself, who frequently link to Wikipedia): “Wikipropaganda – Spinning green“, National Review, 8 July 2008. He describes how a small number of people have in effect hijacked Wikipedia to promote their own views and censor others.

The article Fred Strong mentions is very interesting: it is totally correct, but still nonsense. I’ll post something on it soon.